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Report On Fannie Mae Regulator A Secret

The Washington Post (10/14, Hilzenrath) reports, "The inspector general's office at the Department of Housing and Urban Development yesterday declined to release the results of an investigation of the HUD agency that regulates mortgage-funding giant Fannie Mae, saying that such disclosure could 'interfere with enforcement proceedings.' Patricia E. Sanders, who handles Freedom of Information Act requests for the HUD inspector general, declined to explain the nature of any enforcement proceedings that could stem from the investigation of the Office of Federal Housing Enterprise Oversight. Sen. Christopher S. Bond (R-Mo.) in April asked the inspector general to assess whether OFHEO's public statements about an ongoing examination of Fannie Mae's accounting 'reflect any inappropriate or undue political influence in the examination process.' OFHEO spokeswoman Stefanie Mullin said that as far as she knew, no one at the agency has received a copy of the inspector general's report. She declined to comment further. Leanne Boyer, a spokeswoman for Bond, said she didn't know when Bond might release the report. 'The senator has not had the opportunity to review it in depth, being busy with prior commitments,' Boyer said." The Post adds that "as it pursues its examination of Fannie Mae, the small regulatory agency is on the defensive on other fronts. Bond has proposed legislation to withhold $10 million of OFHEO's funding until Director Armando Falcon Jr. is replaced. In rejecting a request for the inspector general's report on the regulators, Sanders cited a legal provision that allows the government to withhold 'records or information compiled for law enforcement purposes' to the extent that release of those records 'could reasonably be expected to interfere with enforcement proceedings.' HUD Secretary Alphonso Jackson has a copy of the inspector general's report, spokesman Douglas P. Duvall said. 'After reviewing it, we'll decide on what if any actions need to be taken,' Duvall said. 'We're not reviewing this report necessarily for action,' he added. 'We're reviewing it because the IG gave it to us for review.'"

Fannie Mae Liberals. The Wall Street Journal (10/14) editorializes, "There were many moments of high entertainment during last week's House hearings on Fannie Mae's creative accounting. But our favorite was the Mister Magoo performance given by Barney Frank (D., Massachusetts) after learning that Fannie had handed out $245 million in bonuses over five years. Mr. Frank chided Fannie CEO Frank Raines and CFO Tim Howard, saying, 'At the level of compensation you get, we ought to be able to count on you to do your very best without additional incentives.' Here's a case of misplaced moral outrage if we've ever seen one. Mr. Franks is mad about the salaries when he really should be mad at the rigged political game that has made them possible. Fannie's regulator, the Office of Federal Housing Enterprise Oversight, has reported that Fannie has been cooking its books. Add that to the increasing evidence that Fannie has been ignoring its mission to provide affordable housing, and we wonder if Mr. Frank doesn't need an eye checkup. Ditto for the good liberals in the Congressional Black Caucus. Members of this group are often the loudest defenders of Fannie and her brother, Freddie Mac. Can it be that the annual donations made by the Fannie Mae Foundation to the Caucus have blurred their vision too? Maxine Waters (D., California) cooed all over Mr. Raines, and Clay Lacy (D., Missouri) played the race card by calling the hearings a 'political lynching' of Mr. Raines, who is African-American. Are CEOs not supposed to be accountable simply because they're persons of color? By the way, Roger Barnes, the whistle-blower who was fired by Fannie after complaining about its accounting procedures, is also black. In a more consistent world -- where political principles mean something -- these liberals would be scorching a company that used a government subsidy to enrich its own executives. Instead, they're defending it." The Journal adds that "the disconnect between Fannie's rhetoric and its self-enriching practice was clear a few months ago when the Department of Housing and Urban Development proposed a rule to require Fan and Fred to purchase more mortgages from lower-income households. Currently, Fan and Fred must buy half their loans from people making less than the median income in a region. HUD wants to raise that target to 53% for next year and to 57% by 2008. It was a modest request, especially since HUD data show that Fan and Fred have lagged behind other mortgage lenders in financing such loans. Well, you would have thought that HUD was proposing to kick poor folks out of their homes, not make it easier to buy them. Fan and Fred's Congressional sympathizers (including some of the same Members who lavished valentines over Fan last week) sent a letter to HUD complaining against the new quotas. And you can bet the companies were egging them on behind the scenes." And "the evidence is overwhelming that Fannie only pretends to be a tribune of the poor. Not only does the company use its implicit subsidy to enrich its executives, some of that money is funneled into the Fannie Mae Foundation, which, no surprise, motors it back out to favorite charities of Fannie board members. It's an odd sort of liberal principle that endorses private profits at public risk."

Justice Asks Fannie To Save Documents On Accounting

The Washington Post (10/13, Hilzenrath) reports, "Fannie Mae, accused by regulators of manipulating earnings, said yesterday that the Justice Department has asked it to preserve records relating to its accounting practices as part of a criminal investigation. In addition, the giant mortgage funding company said investors have filed or are preparing eight lawsuits against the company, chairman and chief executive Franklin D. Raines, and chief financial officer J. Timothy Howard. The suits generally allege that Fannie's accounting violated federal securities laws, the company said in a regulatory filing. Another suit filed against members of Fannie's board of directors alleges a 'breach of fiduciary duties,' Fannie said." And "The report Fannie Mae filed with the SEC yesterday said the U.S. attorney's office for the District of Columbia asked the company on Friday 'to preserve certain documents, including documents relating to the matters discussed in the OFHEO report.' 'Since OFHEO first announced its intention to conduct a special examination, Fannie Mae has been proactive and comprehensive in preserving records related to the subject matter of that examination, and we will adopt the same fully responsible approach in connection with any other inquiry,' Fannie Mae spokesman Charles Greener said yesterday." The Post adds that "in other developments, the Department of Housing and Urban Development's inspector general has completed an investigation of OFHEO requested by Sen. Christopher S. Bond (R-Mo.), but neither Bond nor the inspector general was releasing it yesterday. In an April letter, Bond asked the inspector general to assess whether OFHEO acted improperly in releasing information about its examination of Fannie Mae earlier this year and whether the disclosures reflected 'any inappropriate or undue political influence in the examination process.' A spokeswoman for Bond said the senator had not had a chance to review the report. HUD has scheduled a briefing for tomorrow to address whether Fannie and Freddie last year met federal goals that require them to devote a certain amount of their funding to affordable housing."

Fannie Mae Confirms Federal Criminal Probe, Hires Top Law Firms. The Wall Street Journal/Dow Jones (10/12, Kopecki) reported, "Fannie has retained some of Washington's priciest securities and white-collar criminal attorneys to defend it against Ofheo's charges, mounting shareholder lawsuits and in related probes by Justice and the Securities and Exchange Commission. The Ohio Attorney General's office is also investigating the matter on behalf of the state's public pension funds. The company hired at least two of Enron's top defense firms to deal with the current crisis -- Wilmer Cutler Pickering and Skadden, Arps, Slate, Meagher & Flom -- and has several other top firms on regular retainer. Company spokespeople declined to name them all. Wilmer Cutler is one of the top securities-litigation law firms in the country. The firm maintains extremely close ties to the Securities and Exchange Commission, hiring about 20 former SEC attorneys over the last decade and referring internally to the SEC as 'Wilmer Cutler-East' because of its location in relation to the firm, according to people familiar with the matter. Partner William McLucas led the SEC as its long-time enforcement chief in numerous high-profile investigations, including its case against notorious junk-bond trader Michael Milken. He also represented Enron Corp.'s directors as the board's lead investigator in its internal probe of Enron's books. Fannie also tapped white-collar criminal defense attorney Robert Bennett at Skadden Arps, who led the firm's work in defending Enron Corp. and HealthSouth Corp. Mr. Bennett is probably most famous for his work defending former President Clinton against sexual-harassment charges levied by Paula Jones. Fannie Chief Executive Franklin Raines has retained legal heavy hitter Robert Barnett of Williams & Connolly to represent him personally. Mr. Barnett's clients are like a Who's Who of Washington elite, including Mr. Clinton and his wife Hillary, Madeleine Albright, Queen Noor of Jordan and James Baker, to name a few. Williams & Connolly also represents Freddie Mac's former CEO Leland Brendsel in a separate accounting scandal and Ofheo charges there. Fannie's board has additionally hired former Senator Warren B. Rudman, a New Hampshire Republican, who is now a partner in Paul, Weiss, Rifkind, Wharton & Garrison, to lead an independent investigation into Ofheo's allegations."

Feds Order Fannie To Save Documents. The New York Post (10/13) reports, "'This is another incremental negative,' said Edwin Groshans, vice president and senior mortgage finance analyst at Fox-Pitt Kelton. 'This is really one of these deaths by a thousand cuts.'"

Fannie Mae Asked To Keep Documents For Criminal Probe. Bloomberg (10/12) reported, "'It may well be that there are reasons for an investigation but at the end of the day no basis for criminal charges,' said E. Lawrence Barcella, a former federal prosecutor who is now an attorney now at Paul Hastings Janofsky & Walker LLP in Washington. Fannie Mae, which buys mortgage loans from lenders and packages them for sale to investors as securities, disclosed the request by prosecutors in a filing with the Securities and Exchange Commission. Channing Phillips, a spokesman for the U.S. Attorney's Office in Washington, D.C., declined comment."

Justice Dept. Probes Fannie Mae. Reuters (10/12) reported, "'Any time a company's stock price falls we expect a class action case, but when there's a separate Department of Justice or SEC investigation, you sort of take a second look at it and are just a little more concerned,' said Andrew Edison, partner at Bracewell & Patterson in Houston, Texas. 'Of course you have to hold judgment until there's any sort of determination by the court of any wrongdoing.' The lawsuits will be consolidated before one judge, who will select a lead plaintiff and lead counsel, and the company and other defendants will undoubtedly push for the claim to be dismissed, he said. Few securities class action cases go to trial, and are either dismissed or resolved by the company, added Edison."

Fannie Mae Discloses Document Retention Request By Prosecutors In Criminal Probe.
The AP (10/12) reported, "Fannie Mae shares fell 42 cents to close at $68.26 Tuesday on the New York Stock Exchange. It sank to a 52-week low of $62.95 last month."

Audit: Agency Misused Money Lehigh County Housing Authority Told It Violated Federal Contract

The Allentown Morning Call (10/22, Hartzell, Kraus) reports, "Federal regulators say the Lehigh County Housing Authority improperly used $4.4 million in federal housing money over the last 16 years to guarantee loans and tax credits held by private investors in Valley Housing Development Corp., the authority's nonprofit corporation. The authority also improperly transferred $95,634 in federal funding directly from its budget to Valley Housing in 2001 to help the corporation pay its bills on money-losing properties, a federal audit states. And the authority's former executive director, John C. Seitz, allowed the appearance of a conflict of interest to exist by pledging authority money to guarantee loans to Valley Housing while simultaneously serving as executive director of Valley Housing, regulators charge. A second report on the audit, issued by the U.S. Department of Housing and Urban Development's inspector general's office, is expected at an unspecified future date." And "the audit recommends that the Housing Authority board implement new policies to prevent problems, and that HUD require the authority to terminate $130,000 in outstanding loan guarantees, and recover $13,100 in direct payments to Valley Housing that are still outstanding. It also suggests that HUD declare the authority in default of its federal housing funds contract, though it wasn't clear what that might mean for the county's low-income public Housing Authority. In its response to the audit issued by solicitor Ken H. Herman, the authority says it's already been taking steps to rectify the problems. Herman wrote there has been no payment of federal funds as a result of the loan guarantees, and that the original guarantee was requested by the Pennsylvania Housing Finance Agency, a state agency that administers the tax-credit allocations. ', and apparently PHFA, did not believe this action was prohibited,' Kent wrote of the loan guarantees. In an interview Thursday Herman added that the loan guarantees had no fiscal impact on the Housing Authority, and that officials are cooperating fully with the auditors." The Morning Call adds that "federal housing officials have not decided how to respond to the audit or what action, if any, to take against the Lehigh County Housing Authority, said Maria Bynum, spokeswoman for HUD's regional office in Philadelphia. Bynum said HUD's Office of Public Housing has 60 days to decide whether to adopt the inspector general's recommendations, or offer its own remedies. She said she did not want to discuss the full range of those options. 'At this point, it is a little premature,' Bynum said. 'The Lehigh County Housing Authority has been cooperating throughout all of this and has been trying to address problems as the audit is progressing.'"